Atomic Industry

Germany's Non-Stop Nuclear Disaster

nuclear_imago
A nuclear plant in the German state of Bavaria.
  • Why it matters

    Why it matters

    Was nuclear power worth it for Germany, given the high costs of winding it down?

  • Facts

    Facts

    • Nuclear power covered all of Germany’s energy needs for 11 years.
    • In 2011, the German government decided to abandon nuclear power.
    • Providers have set aside €38 billion to wind down nuclear plants but many believe this will not be enough.
  • Audio

    Audio

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They celebrated with a picnic, drank champagne, lit sparklers and even set off a few fireworks on a summer’s night next to the nuclear power station.

The environmental activists from Bavaria were toasting energy giant E.ON’s shutdown of Grafenrheinfeld nuclear power plant on June 27, 2015.

The opponents of nuclear power had met up earlier at an intersection near the reactor. Sitting in folding chairs, they watched the plumes rise from the two cooling towers for the last time.

“We have been calling for the phase-out of deadly nuclear technology for decades,” said Hubert Weiger, chairman of BUND, an environmental organization and the German association of Friends of the Earth Germany.

The Grafenrheinfeld shutdown, Mr. Weiger said, was “a success and cause for celebration.”

After the Fukushima reactor disaster in Japan, the German government announced the immediate shutdown of eight reactors in March 2011.

This was part of Germany’s energy transition, the country’s sudden switch away from nuclear power towards renewables, a move that is costing companies and the public billions of euros.

There were no further closures during the next four years but now the Grafenrheinfeld shutdown marks the beginning of the last stage of Germany’s nuclear phase-out.

Still, the mood among the activists wasn’t exactly exuberant. The next day, they held a small prayer meeting as a reminder that the fight isn’t over yet, not even in Grafenrheinfeld, where years will pass before the demolition of the plant begins.

Contaminated waste from the reactor may well be stored on the grounds for decades to come.

“As pleased as we are about the shutdown, we mustn’t forget that the nuclear industry is burdening us with a deadly legacy, one that continues to supply fuel for political conflict today,” said Greenpeace nuclear expert Tobias Riedl.

In 2022, when the last of the eight nuclear power plants still in service today stops generating electricity, Germany will be closing only one chapter in its nuclear history.

The next chapter, of demolition, has already begun. It is likely to be costly and difficult – it will take decades to knock down the reactors and disposing of the nuclear waste could literally take forever.

Looking back at 60 years of nuclear power in Germany, there have been high costs but few benefits.

This last phase of nuclear power in Germany will be especially complex. There has already been months of discussion of who should pay for the disposal.

For months, the government and the four utilities in Germany involved in nuclear have been wrangling over who should cover the costs of winding down the power plants and disposing of the waste.

It is unclear whether the sum set aside by the utilities – €39 billion or $44 billion – will be enough; the total cost is likely to be closer to €50-60 billion or more.

What is clear is that the utilities companies are overwhelmed by the phase-out of nuclear power. German citizens will ultimately be expected to pay for the consequences.

Looking back at 60 years of nuclear power in Germany, there have been high costs but few benefits.

It began in 1955 with such euphoria. That year, the Paris Accords put an end to the occupation statute and the Federal Republic of Germany was granted full sovereignty.

The treaty also ended the ban on the use of nuclear energy in Germany, including for peaceful purposes. That year, the Federal Ministry for Atomic Energy was established and Franz Josef Strauss was made Minister for Atomic Affairs.

The Federal Atomic Law, which regulated the scientific and economic use of nuclear technology, was introduced four years later.

The first nuclear chain reaction in a German power plant was triggered on November 13, 1950 in Kahl, in the southwestern state of Hessen.

Six months later, for the first time, electricity generated by nuclear power was fed into the grid.

West Germany was the fifth country to generate electricity through nuclear power, after the United States, the USSR, France and the United Kingdom.

At the time, Mr. Strauss said “The peaceful use of atomic energy is as important a milestone in human history as the invention of fire was for our forefathers.”

Half a century later, it is clear that the decision in favor of nuclear power was indeed a milestone in German history – but a fatal one. No other technology has divided the country as much as nuclear energy.

While reactors were being built one after the next in the 1970s, partly in response to the 1973 oil crisis, a resistance movement was growing, first locally and then nationwide. It left a lasting impression on German politics; in 1980, the Green Party emerged from the environmental movement.

By the time of the 1986 Chernobyl reactor disaster, the conflict over nuclear power had become a dispute over the country’s political orientation.

At nuclear waste disposal sites from Bavaria to northern Germany, activists held demonstrations, blocked construction and took on the nuclear industry. Each of the trains transporting nuclear waste was accompanied by thousands of demonstrators – and as many police officers.

Germany decided to phase out nuclear power in 2000 under a coalition government between the Green Party and the center-left Social Democratic Party (SPD).

Until Fukushima, there had been support for nuclear energy from the center-right Christian Democratic Union (CDU). After the disaster in 2011, the party abandoned its support and under Chancellor Angela Merkel, accelerated the phase-out of nuclear power.

Looking back at 11 years of nuclear energy in Germany, the economic record is sobering.

By the end of 2014, five trillion kilowatt hours of electricity had been generated in the 36 German nuclear power plants, including prototypes, test and demonstration plants.

A maximum of 590 billion additional kilowatt hours will be generated by the time the last plant is shut down in 2022.

The utility companies kept the key figures in their nuclear departments secret.

But using wholesale prices and historic prices for industrial customers, the Arthur D. Little consulting firm, in a calculation performed for Handelsblatt, estimated that electricity from nuclear power has generated total revenues of €175 billion to date. Another €17 billion could be added to the total by 2022.

One of the pluses of nuclear power is its contribution to protecting the climate, its proponents argue.

 

aerial view power plantHandelsblatt print
Fewer smokey chimneys ahead. Source: Handelsblatt print

 

In contrast to coal-fired and gas-fired power plants, nuclear reactors produce virtually no carbon dioxide.

According to the calculations, Germany’s nuclear power plants will have prevented the emission of 2.1 billion tons of carbon dioxide compared to gas-fired power plants, by the end of the phase-out.

When coal-fired power plants are used as the benchmark, nuclear power plants accounted for 6 billion tons of reduced CO2 emissions.

What does this count for, compared to the technology’s enormous risks and the fears it triggered across the country? Germany has never known a major nuclear scare but after the Chernobyl disaster in 1986 and to the Fukushima meltdown, no-one had any more illusions.

Still, a series of incidents in Germany fueled the citizens’ fears of the technology and worries about the capabilities of plant operators.

One was in June 2007, when thick smoke rose into the sky from a power plant near Hamburg. A short circuit led to a fire in the transformer. The reactor was shut down using emergency shutdown procedures.

Not 50 miles away, almost simultaneously, there was a short circuit at another reactor. It too was shut down. Two years later, embarrassingly for operator Vattenfall, another serious problem occurred shortly after the reactor had been restarted. It was shut down again.

There were other mishaps.

In 2006, provider RWE had to take the two reactors in Hessen offline because special screw anchors were installed incorrectly. RWE had to replace 15,000 of the 20-cm anchors, a repair job that lasted almost two years.

Another plant, in Koblenz, was only online for two years. RWE had to shut down its reactor in 1988 because there had been irregularities in the approval process.

Now, nuclear energy is nothing but a burden, its waste as problematic for its citizens as the reactors were worrying.

The demolition and disposal of the remnants of the technology are a huge task that will cost a lot of time and money.

At the power plant in Grafenrheinfeld, little will change during the next five years.

The fuel rods will initially stay in the reactor holding basin. Provider E.ON says they will eventually be taken to the adjacent interim storage site on the plant grounds. Only then can the plant actually be dismantled.

The cooling towers will presumably be torn down in 2028. And in 2030 – 15 years after it is shut down – the plant will be completely dismantled.

Operator E.ON estimated the costs of decommissioning and dismantling the plant at €1.2 billion.

The other providers face similar costs.

These break down into two sections. First, when the fuel rods are still in the reactor during decommissioning, the costs reach €70-90 million a year. Safety requirements remain stringent and the plant is essentially kept operational, complete with the entire staff. Decommissioning takes five years, at an estimated cost of more than €300 million.

Only when the fuel rods have left the reactor – and about 98 percent of radioactivity has been disposed of – can providers go ahead with the demolition.

What the actual demolition costs depends on the type and size of the reactor.

Industry estimates place the cost of demolishing a medium-sized reactor with an output of 1,000 megawatts at €700-850 million.

The total cost of demolishing the 17 reactors affected by the German government’s phase-out decisions will be €18 billion at least.

There are already a few precedents for demolishing nuclear power plants in Germany; operators know the procedure and costs can be estimated with reasonable reliability.

But the disposal and storage of nuclear waste is a great unknown.

At the end of 2014, there were already 29,000 radioactive fuel rods in interim storage sites and the holding basins of power plants. The Society for Plant and Reactor Safety (GRS) estimates that the waste consists of about 15,000 tons of heavy metal. The problem is that there are currently no final storage sites for highly radioactive waste.

Two years ago, the German government started to search anew for permanent storage sites for the waste.

One manager involved in the search for sites said there was no clarity at all about the number of sites considered or whether salt, rock, clay or granite are considered suitable for the places where the waste will be buried.

Nuclear power companies had estimated the price for storing nuclear waste at Gorleben, the site used so far, at €7.7 billion.

That price tag included construction, operation and shutdown. But these figures are now obsolete. Even the costs of the selection process, estimated at €2 billion as recently as 2013, are already being questioned.

 

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Protests against nuclear power in Germany in 2001. Source: DPA/UliDeck

 

In a recent report by the Federal Environment Ministry, it is “currently unreasonable to conduct a credible, updated cost assessment.”

The industry aims to find a site by 2031, but it is unlikely that a final repository will be in operation before 2050, according to an industry manager.

Until then, temporary storage mean year after year, costs are piling up. There are no official figures, but insiders estimate an annual cost of €5 million each for Germany’s two large interim repositories in Gorleben and in Ahaus in the western Germany.

There are 12 other storage sites next to nuclear power plants. This would bring the costs of temporary storage to €50 million a year. The costs could easily reach into the billions before a final repository is up and running.

Plus, many tons of low and medium level radioactive waste need to be disposed of. Work is underway to transform a mine into a repository. By the time it is launched, this project will also have eaten up €7.5 billion.

One question keeps coming up in light of the unsolved repository issue. Have nuclear operators set enough money aside?

The federal government has been looking into this question for months. It hired auditors Warth & Klein Grant Thornton to do a stress test of nuclear companies’ balance sheets. The results are still under lock and key, but the interim results are alarming.

The experts at Warth & Klein mainly check whether the companies are making calculations with realistic assumptions regarding future interest rate development?

Currently, E.ON, RWE, EnBW and Vattenfall have taken interest rates between 4 and 4.7 percent as a basis.

For the companies, high interest rates are favorable because with them the present value of the provisions turns out to be lower – and so does the burden on the company’s balance sheet.

 

Nuclear waste disposal Picture alliance DPA
The disposal process is surrounded by difficult questions. Source: Picture alliance/DPA

 

But in light of the low bond yields, a rate of more than 4 percent hardly seems realistic, especially if you compare nuclear provisions with pension provisions.

According to calculations made by the management consulting firm Mercer, the DAX companies recently lowered their actuarial interest for their pension obligations by an average of 1.4 percentage points. At many DAX companies it is now at a value of about 2 percent.

The parallel to the nuclear provisions is obvious.

The full explosiveness of the stress test became evident in mid-September. One extreme scenario was made public which figured in a negative interest rate, meaning the provisions had to be increased to €30 billion; the stock price for both E.ON and RWE dropped 13 percent within two hours.

Even Economy Minister Sigmar Gabriel had to intervene. “The current numbers games are no basis for our concrete political negotiations,” he said, speaking of “irresponsible speculation.”

The debate over the stress tests and the level of the provisions has raised an even more critical question: Are the German nuclear energy companies still capable of managing the nuclear phase-out?

If they have to set aside more money for the wind-downs, that would “kill” E.ON and RWE, according to Ingo Becker, an analyst at Kepler-Cheuvreux.

The companies have been badly stricken by the energy transition, not only because of the loss of the power plants, but the boom in wind and solar energy has detracted from the coal and gas-fired power plants and as a result is destroying the providers’ core business – operating larger power plants.

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Germany’s Green party in 1980. Source: DPA/Heinrich Sanden

 

Because the market is flooded with solar and wind energy, wholesale prices fell by more than €20 to €30 per megawatt hour within three years. For a long time, gas-fired power plants have only paid off in times of unusually high demand, coal power plants even less so, and even with nuclear plants the limit of profitability has since been reached.

The stock exchange has long questioned the performance of the shrinking energy giants. RWE shares have forfeited more than half their value this year, and E.ON lost more than 40 percent. RWE is not even worth more than €7 billion overall, and is worried about staying on the DAX. E.ON is just worth €16 billion, while in 2008 the company was worth more than €100 billion.

Now a commission is supposed to work on the crucial question of how, despite the crisis of the energy companies, it will be possible to secure the financing for dismantling the reactors and storing the waste.

There’s discussion of how a fund could work. Conceivably, the companies could be required to manage the dismantling of the plants themselves from the money they have set aside. They would then be required to put the portion of the provisions that is meant for the final disposal of waste in a public foundation or in a fund.

It remains unclear who would lead such a commission. Jürgen Trittin, a veteran Green party member and a father of the nuclear phase-out, was named as a potential member, as was the former Environment Minister Klaus Töpfer of the Christian Democratic Union (CDU). Yet these names have not been confirmed. The economy ministry, which is responsible for naming members of the commission, only says that a list of names has been drawn up, but a decision has not yet been made.

One thing is clear, however: Representatives from the energy companies will not have a seat at the table for the talks about how to secure the financing of the phase-out in the long-term.

E.ON’s chief executive Johannes Teyssen has some ideas about the government participating in the nuclear phase-out. “You can’t just hide in the bushes,” he told Handelsblatt recently in an interview. “This is a task to shoulder together. We should remember that it was a joint activity from the start, and it must also be ended together responsibly.”

But is that fair? Haven’t the companies earned enough money for a long time from the reactors?

That argument doesn’t wash with Michael Kruse, director of the division of Energy & Utilities at Arthur D. Little. “Viewed economically, the nuclear phase-out comes at the wrong time,” Mr. Kruse said. “The plants will be turned off at the time at which they would first have started counting.”

It’s true that the operation of nuclear power plants is inexpensive by comparison. The variable costs per megawatt hour are estimated in the industry at under €15. In comparison: the variable costs of coal-fired energy are at least €25, and for gas at least €45.

But for the cost of constructing the plants is especially high and it takes a long time to cover the investments.

Arthur D. Little calculated investment costs of €250,000 per megawatt of power with the first power plants, and up to €1.45 million for the most modern German reactors. A new plant with an output of 1,000 megawatts would cost almost €1.5 billion. Depending on the level of electricity prices, the amortization could last up to 30 years, according to the consultants.

But after the decision for the phase-out, the plants can only operate on average 32 years. In a sample calculation in which the consultants used variable operating costs of  €15 per megawatt hour, a capital cost rate of 3 percent and even added a federal investment of €17 billion, they reach a surprising result with the capital expenditure: The German nuclear industry would first break even in the 2020s.

So even for the companies, it didn’t make sense to use nuclear energy. Their balance sheets would have been even worse if the government had not already supported its use by providing high subsidies. Energy executives like to complain about the support for wind and solar energy, but they have been profiting themselves for decades from open and hidden subsidies for nuclear energy.

So what will the nuclear adventure truly cost the Germans?

Swantje Fielder at Green Budget Germany (FÖS), ran calculations that caused a ripple of horror through the nuclear industry. According to her analysis, one kilowatt hour of nuclear power in 2014 did not cost 4 cents, which corresponded approximately to the selling price on the stock exchange that year, but it cost instead between 14 and 37 cents per kilowatt hour. At least if you factor in all of the true costs.

Ms. Fiedler factored in numbers that the industry does not have to take into their calculations, primarily the funding from the government and external costs. In her most recent report, “What electricity really costs,” completed for Greenpeace Energy, the green electricity subsidiary of the environmental protection organization, and published in January 2015, she wrote that the nuclear energy industry profited “for decades to a considerable extent from state funding in the form of financial aid, tax incentives and further beneficial framework conditions.”

Among other things, Ms. Fiedler included €53 billion that has flowed into nuclear research so far. In her opinion the companies also benefited because they were able to make their provisions tax-free and could use them somewhere else for corporate financing.

She set the figure for this effect at almost €80 billion. In all, according to her calculations, the reductions over the time period from 1970 to 2014 totaled €219 billion.

Even higher numbers are still at play when it comes to external costs, though they are difficult to quantify. “That primarily depends on the fact that here you have to make assumptions about the likelihood and the resulting costs of a nuclear accident with the release of radioactive material,” wrote Ms. Fiedler. FÖS estimates a range of between 11 and 34 cents for external costs in its calculations.

From FÖS’ point of view, there are external costs because the nuclear plant operators only have to account for very negligible insurance coverage. The German Nuclear Reactor Insurance Association, which pools insurance for the operators, covers liability damage up to €256 million. The nuclear power plant operators have pooled another €2.2 billion. If the damages are higher, the operator of the reactor has unlimited liability related to its assets. But that may not be nearly enough, because no company could absorb financially the recourse for a nuclear catastrophe.

A look at Fukushima makes clear that insurance ought to be considerably higher than it currently is in Germany. The damages from a reactor catastrophe will be assessed in the high hundreds of billions, and the trend is rising. A similar event in Germany could result in even higher damages, because the region around Fukushima is sparsely populated.

According to an academic worst-case scenario, the damages, in prices from 2012, could total €8.5 trillion. FÖS calculates that in that case the liability premium due would be €445 billion – per year. Considering such a trillion-euro bomb, nuclear energy would be unaffordable.

These numbers might not be completely plausible but the doubts about the insurability are clear. So it is no accident that the insurance industry did not issue liability policies for the reactors in Germany, and the operators had to tailor their own solution.

FÖS describes itself as an “independent political think tank,” which is financed by a “combination of contract work for ministries, foundations, parties and environmental organizations,” as well as by donations and membership dues. From the operators’ point of view, the organization is a nuisance, however, because for years it has doggedly focused on the industry’s weakest points.

The German Atomic Forum, an interest group for the operators, says it is all right in principle that the FÖS includes the technology subsidies in recent decades in its calculations. But, it says, on other points, work done by FÖS is based on a questionable definition of subsidies and calculations as the institute sees fit.

The people at FÖS are reluctant to accept such criticisms because the methods and sources are documented exactly. Aside from that, they argue that not everything has even been recorded that can actually be factored in. “Our full costs accounting, for example, does not include the future costs for the dismantling of the reactors and the storage of nuclear waste,” said Ms. Fiedler.

And according to all calculations about the profitability of nuclear power plants, the nuclear power companies had enough time to prepare for a phase-out and to make provisions.

E.ON alone has raked in a net profit of almost €56 billion since the 2000 nuclear consensus, and RWE had €26 billion in profits. E.ON also distributed a total of €30 billion to the shareholders, while those holding RWE shares got almost €28 billion.

The nuclear power companies tried for far too long to reverse the decision. The energy executives fought for far too long for their core energy, and for far too long ignored the unstoppable boom in wind and solar power, therefore dumping enormous sums. While the competition was investing in wind turbines and solar panels, E.ON and RWE spent tens of billions on coal-fired power plants. At the same time, E.ON wasted a lot of money in Spain, Italy and Brazil, and RWE overspent in the Netherlands.

The energy companies led the good life for decades. Now, when the times are tough though, they are suddenly too weak to count on.

The politicians are stuck in a dilemma, as Economy Minister Sigmar Gabriel underlined recently.

At the beginning of September, Mr. Gabriel presented a proposed law memorably entitled “Parents are responsible for their children.” It is meant to prevent the energy companies from shirking their responsibilities when they split off their nuclear divisions, as the Swedish company Vatenfall did in 2012 and as E.ON planned.

With his proposed law, Mr. Gabriel forced E.ON’s chief executive Mr. Teyssen to reverse his course: the energy company will now keep its nuclear power plants, even though Mr. Teyssen complains that the law would be unconstitutional.

Last week, though, Mr. Gabriel surprisingly took a milder tone. He said at a public discussion of energy policies at the Bonn University Forum: “The energy companies are facing very difficult market conditions, for which they are partly at fault. But they are also the victims of politics.”

He said that the nuclear energy companies should not be released from liability when it comes to dismantling the reactors and disposal. “But we must be careful not to endanger four companies because then we wouldn’t get the €38 billion at all,” Mr. Gabriel said.

The writing is on the wall. The public will have to prepare to foot the bill.

 

Jürgen Flauger covers the energy market for Handelsblatt, including electricity and gas providers, international market developments and energy policy. Klaus Stratmann is the deputy bureau chief of Handelsblatt in Berlin and covers the energy market. To contact the authors: flauger@handelsblatt.com and stratmann@handelsblatt.com

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